ADVANCE

As always, if you have questions, please call the AdClub Office, 513.984.9990.

_____________________________________________________________________________________

New Update!

Anti-SPAM Plaintiffs Find Little Success in the Courthouse
But They Can Cause Mountains of Attorneys’ Fees

By Kevin T. Shook

As businesses across the country increase their efforts to market their products
through e-mail, a motley crew of plaintiffs have created a cottage industry of
lawsuits seeking damages for e-mails that they claim violate the federal CANSPAM
Act and deceptive advertising laws.

Fortunately, federal courts have done a good job filtering through the cases and rejecting those
plaintiffs who seem to bring claims for no reason other than to generate income. Last week, in a
case titled ASIS Internet Services v. Azoogle.com, the Ninth Circuit rejected CAN-SPAM claims
brought by a small ISP plaintiff. The Ninth Circuit relied upon its previous ruling in Gordon v.
Virtumundo, finding that Azoogle.com lacked standing to bring a CAN-SPAM claim because it was
not “adversely affected by” any statutory violation. Specifically, the Ninth Circuit stated:

the mere costs of carrying SPAM emails over Plaintiff's facilities does not constitute a harm
as required by the statute. While Plaintiff argues that employee time was spent on spamrelated
issues, Plaintiff concedes that it has no records detailing employee time. Plaintiff also
spent money on email filtering, though the cost of email filtering did not increase due to the
emails at issue. Such ordinary filtering costs do not constitute a harm. Thus, Plaintiff has not
suffered a harm within the meaning of the statute and lacks standing.

The ruling is significant because Azoogle.com is an actual ISP, albeit a small one, with real users
who have real e-mail accounts. This case did not involve the same kind of facts encountered in
Gordon v. Virtumundo, where the plaintiff set up an ISP for the sole purpose of collecting e-mails
and filing lawsuits based upon technical violations. The Ninth Circuit’s clear message is that it will
not entertain CAN-SPAM lawsuits that consume judicial resources and cause excessive attorneys’
fees, when there is little to no actual damage to the plaintiff. Under this standard, we may be
headed toward a legal framework in which CAN-SPAM claims can only be brought by larger ISPs,
social networking websites and state actors.

However, even under this framework, the onslaught of e-mail advertising lawsuits does not appear
to be going away any time soon. Numerous private plaintiffs not only continue to bring e-mail
advertising claims under the CAN-SPAM Act, but they are also bringing claims under the general
federal and state deceptive advertising laws.

For example, the Ohio Administrative Code has specific rules about the use of asterisks in
advertisements and the font size of any qualifiers used in connection with the use of the word,
“FREE.” As a result, plaintiffs in Ohio have filed numerous e-mail advertising lawsuits seeking to
capitalize on these kinds of provisions and claiming nothing but statutory damages and attorneys’
fees.

While these kinds of claims have been repeatedly rejected by the courts, the cost of defending such
cases can be pricey. The best practice is to obtain legal counsel before publishing your e-mail
advertisements to make sure all laws have been followed and there are no technical problems for
plaintiffs to prey upon.

On October 5, 2009, the Federal Trade Commission approved the final revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”), which will affect both advertisers and endorsers alike. Last updated in 1980 when the Internet was still in its infancy, the revised Guides address the use of endorsements and testimonials in emerging communication
channels, e.g., blogs, online discussion boards, word-of-mouth campaigns, etc., which may be especially vulnerable to false or misleading endorsements due to consumers’ ability to publish content directly and without any sort of editorial review.

The Guides, which will become effective on December 1, 2009, contain a number of important revisions and clarifications of which advertisers and endorsers should be aware:

1. Say Goodbye to “Results Not Typical” Disclaimers.
The use of a disclaimer, such as “results not typical,” will no longer be sufficient to protect an advertiser from liability for deceptive advertising when touting the atypical results achieved using its product or service. So, for instance, if a diet pill advertiser wishes to promote its product using a consumer testimonial averring that “I lost 50 pounds in 2 weeks!” when the more likely weight loss consumers should expect is 6 pounds in 2 weeks, the advertiser must disclose the more generally expected results to avoid making a false advertising claim.

2. Be Transparent!—Disclose Connections between Endorsers and Advertisers.
One of the FTC’s biggest worries accompanying the emergence of new media sites like blogs,
Facebook®, and Twitter® has been the ability of consumers to understand and appreciate where there is an important connection between an advertiser and consumer endorser through word-of-mouth programs. The FTC believes that “behind the scenes” connections based on payments, free products, or other benefits to the consumer endorser must be clearly disclosed so that consumers can appropriately judge the endorser’s credibility. The Guides have always mandated full disclosure when a material connection exists between an endorser and a seller of the advertised product. The revised Guides reflect that longstanding principle and provide new examples illustrating its application to new media outlets. The same disclosure rules apply to celebrity endorsers, who should take care when promoting a product on a television show or using social media sites, and endorsements made by outside research organizations.

3. Both Endorsers and Advertisers Can Be Liable for False Advertising.
The revised Guides make clear that liability for false advertising using endorsements or testimonials
can cut both ways. For example, an advertiser who encourages a blogger to review its product by
sending a free sample may be liable for the false or unsubstantiated statements made about the
product by the blogger, even if the advertiser has no other relationship with the blogger. Moreover, the advertiser may be liable if the blogger fails to disclose that he received the reviewed product for free from the advertiser. Endorsers may also be liable for deceptive advertising when they make false statements or assertions about a product, regardless of whether the endorser is merely following a script prepared by the advertiser.

Although the Guides are not binding—they are administrative interpretations of the law—advertisers
and endorsers should heed the new revisions because they are one of the best indications as to how
the FTC will enforce the law. Keep in mind, also, that the Guides only apply if an endorsement or
testimonial is made by a consumer and “sponsored” by an advertiser, such that the consumer could be said to be acting on behalf of the advertiser. Several factors may indicate the presence of sponsorship, including: the consumer’s receipt of compensation, free products, or other benefits in exchange for the endorsement; the value of the items endorsed; the length of the relationship between the consumer and advertiser and likelihood of a future relationship; and any terms of agreement existing between the consumer and the advertiser. Thus, for example, if a consumer buys a product on her own volition, with her own money, and then decides to blog about the product, the Guides would not apply because no relationship exists between the consumer and the advertiser and no “sponsored” endorsement was made.

Through these revised Guides, the FTC is urging transparency, and over the next months and years the FTC’s interpretation and application of the Guides will be fleshed out. But in the short term, advertisers should work with their advertising counsel to ensure compliance with the Guides by (1) developing contractual language to notify endorsers of their duties under the Guides and to ensure the proper disclosures are made; (2) drafting monitoring procedures to make certain that what is published actually makes the proper disclosures and if not, that appropriate action is taken; and (3) if word-of-mouth organizations are used by an advertiser, using contractual language to advise the organization of the disclosure obligations and to ensure the organization has proper monitoring procedures in place.

________________________________________________________________________________________________

There is no doubt a tough economy can spur creativity. In the advertising world, we are seeing more and more businesses looking for different, more cost effective approaches to reaching relevant target audiences. But different need not mean new. Indeed, for some, creativity is not realized through the
generation and adoption of novel marketing efforts, but through the first time adoption of marketing techniques that have long been effective for others. Whether couched as a “me too” effort, smart, or both, a tough economy can force exploration of new and old ideas alike. Enter the world of charitable sales promotions.

Officially termed commercial co-venturer programs, charitable sales promotions reflect a merger of forprofit and non-profit interests. These programs combine the appeal of a charitable cause with the sale of products or services of a for-profit business. For definition purposes, a charitable sales promotion is an advertising or sales campaign which represents that the purchase or use of goods or services offered by the for-profit entity (a/k/a the “commercial co-venturer”) will benefit a charitable organization or purpose. Modern day examples are abundant. If you’re looking for ways to support the fight against AIDS in Africa and happen to also need a new baby stroller, look at the (RED)TM branded Bugaboo stroller where about 1% of the purchase price goes to The Global Fund. Or, join the fight against breast cancer and select from the hundreds (perhaps thousands) of products available through the Susan G. Komen for the Cure®. Whether promoted by the for-profit or charitable entity, we’ve all seen them and have been (or eventually will be) moved to purchase an item or two as a result.

While these types of promotions are not exactly unfamiliar to most, what often comes as a surprise to
lawyers and advertisers is that these promotions are regulated under charitable solicitation laws in over 20 states. This would not come as a surprise if all of the obligations were placed on the charitable
organization – but, this is not the case. In many of these states, specific requirements are placed on the for-profit entity engaging in charitable sales promotions. For example, while each state law is different, common requirements placed on the for-profit entity include: (1) existence of a written contract between the entities setting forth the parameters of the charitable sales promotion; (2) specific language or terms that must be addressed in each such contract; (3) the filing of written contracts with the relevant state entity; (4) registration with the state prior to commencement of the charitable sales promotion; (5) posting of surety bonds; (6) specific disclosures in advertising for the charitable sales promotion; and (7) preparation and maintenance of a final accounting for the charitable sales promotion.

The purpose of this article is not to detail or examine all of the requirements of each state law. Rather, it is to counsel against a tendency to assume that a charitable organization will “handle” all legal obligations under various state charitable solicitation laws. Charities will no doubt ensure they are in compliance with the laws that impact their organization, but providing advice on the legal obligations of for-profit entities likely falls outside their charitable cause. For-profit entities should not, however, be discouraged from engaging in charitable sales promotions. These types of programs can in fact benefit both charitable and for-profit entities. In addition, the reality is that many state laws impose only moderate obligations on forprofit entities. Experienced counsel can help you navigate the requirements in these states as well as those with perhaps more onerous requirements (e.g., Alabama, Maine, Massachusetts and South Carolina). The key to fully benefiting from this valuable promotional tool is proper attention and planning.

________________________________________________________________________________________________

A federal district court in California recently dismissed two putative class action lawsuits alleging that the marketing and packaging of Froot Loops and Cap’n Crunch with Crunchberries deceived consumers into believing that the products actually contained real, nutritious fruit. Both lawsuits were brought under California’s Unfair Competition Law and were rejected on virtually identical grounds.

The Froot Loops lawsuit alleged that Kellogg’s use of the word “Froot” in the product name,
coupled with pictures of fruit and the brightly colored cereal on the packaging was deceptive. The
Plaintiff, Keith Videtto, claimed that he purchased Froot Loops over a period of four years in large
part because he had been exposed to this packaging. The ingredients list on the Froot Loops box
reveals that the cereal contains no actual fruit, but only “natural fruit flavors.”

Similarly, the Cap’n Crunch with Crunchberries lawsuit alleged that the Defendants’ use of the
word “berries” in the product name, along with the packaging depiction of “Cap’n Crunch thrusting
a spoonful of ‘Crunchberries’ at the prospective buyer,” was deceptive. The Plaintiff, Janine
Sugawara, claimed that the packaging led her to believe that Crunchberries actually contained
elements of redeeming fruit. The ingredients listed on the Cap’n Crunch box indicate that the only
fruit content in a Crunchberry is a touch of strawberry fruit concentrate.

In granting both motions to dismiss, the court distinguished the Ninth Circuit decision in Williams
v. Gerber Co. (2008), which found that the packaging of a Gerber product “could likely deceive a
reasonable consumer.” In that case, the product was called “Fruit Juice Snacks,” and the
packaging depicted a number of different fruits and contained statements that the product was
made with “all natural ingredients” and would “help toddlers grow up strong and healthy….”

Contrasting the Gerber case, the court noted that the Froot Loops packaging does not
prominently feature pictures of fruit and contain phrases suggesting nutritional value. Instead, it
features the name Froot Loops, a picture of Toucan Sam, a picture of a bowl of Froot Loops, a
small banner stating “natural fruit flavors” with “small vignettes of fruit next to it,” and the phrase
“sweetened multi-grain cereal.” The court stated that “the fanciful use of a nonsensical word
cannot reasonably be interpreted to imply that the Product contains or is made from actual fruit.”
With the absence of any nutritional claims on the box, the court found that it’s “entirely unlikely”
that members of the public would be deceived.

Similarly, the court found that the Cap’n Crunch packaging was not deceptive because it makes
no claim “to be particularly nutritious or to be designed to meet the nutritional needs of toddlers or
children….” The court further noted that it was not aware of any actual fruit referred to as a “Crunchberry,” and the packaging clearly depicted a Crunchberry as “round, crunchy, bright
colored cereal balls.” Under these facts, the court concluded that a consumer was not likely to be
deceived as a matter of law.

Videtto v. Kellogg, E.D.Calif. No. 08-1324 (2009 U.S. Dist. LEXIS 43114)
Sugawara v. Pepsico, E.D. Calif. No 08-01335 (2009 U.S. Dist. LEXIS 43127)